One of the typical errors made by new rental property investors in Orangetown is over-improving their rental homes. It’s normal to want your rental to be in great condition to draw quality tenants, but excessive improvements can shrink or erase your profits. This caution is designed to make you aware of the risks and help you make well-informed investment choices.
Our practical suggestion is to consider strategic planning and tackle profitability issues before buying. By keeping your end goal clear from the start, you can avoid financial difficulties from over-improving.
Plan for the long-term
Many experts recommend beginning with an exit strategy for your investment. You need to ensure that you can refinance or sell an investment property at the right time and make a profit. If you can’t, why buy the property at all?
Discuss with various lenders to gain insights into mortgage products, costs, and if your goals align with your financials. A good lender can identify barriers you may face and confirm if your strategy is robust.
Calculate property value after repair
An essential detail to avoid over-improving your Orangetown rental property is its After-Repaired Value (ARV). The ARV is the predicted value of the property after repairs or renovations. To guarantee a profitable investment, you need to know the house’s value after improvements.
Calculate your ARV with accurate comparable properties. Afterward, consult with real estate agents, other investors, and your contractor. The more details you gather, the more confident you’ll be that your improvements are sufficient—but not excessive.
Finding the proper balance can be tricky, particularly for first-time investors. However, you can use comparables—similar properties recently sold or rented in the same area—to guide your improvement decisions. Knowing the local rental market helps you upgrade your property to achieve competitive market rents.
Don’t go overboard with improvements
One of the worst errors is upgrading your property beyond the neighborhood’s average. When neighborhood houses mostly feature tile floors and composite countertops, refrain from using hardwood and granite.
Ensure your upgrades are of good quality, but know that luxury materials and high-end products are often wasteful. Aim for mid-grade materials that offer good quality without being too costly or luxurious. Even in a high-end neighborhood, aim for mid-grade materials and tasteful, not extravagant, improvements.
Prioritize profitability over personal preference
To avoid over-improving your rental, remember not to get emotionally attached to the house. See it as an investment, not a personal home. Becoming emotionally involved in your rental can result in renovations you like but won’t significantly enhance profitability. Wanting to take pride in your rental properties is normal, but it should come from having a profitable, well-run investment, not from how much you spent on upgrades.
Interested in expert advice to optimize your rental property profits? Real Property Management DePenn can help. We’re a team of experienced property managers in Orangetown and nearby. Contact us online or call us at 866-820-9913 to learn more.
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